Governments train their sights on illegal wealth in private banks

By Josephine Moulds / The Guardian

High-street banks have long promised to go the extra mile for their customers, but none of them can purport to offer the kind of service private banks do.

Coutts recalls a story when a client dropped his wallet over the side of his yacht. One satellite-phone call later and the bank couriered out cards and cash to the next port he was going to. Then there was the diabetic client who got straight off an aircraft and into back-to-back meetings. When he finally checked into his hotel, there was nothing on the menu he could eat, so he called his bank — obviously — which duly sent a taxi there, complete with restaurant recommendations.

Private banks even send their clients’ children on boot camps for offspring of the ultra-rich. AH Loder Advisers has an annual dog-sled expedition across the Arctic. While billed as leadership training, these trips are as much about ensuring the children stay with the bank when they inherit.

However, such service does not come cheap. Individuals have to have about ￡1 million (US$1.55 million) in investable assets before private banks will even deign to speak to them, though Coutts says this is flexible.

Beyond these perks, private banks emphasize personal service. Where a retail bank will take a cursory glance at your credit rating, a private banker will ask about a client’s family history and their “objectives for their wealth.” Instead of a Mumbai call center, customers will have the mobile number of their private banker, whom they can call at any hour of the day. It is hardly surprising; safeguarding the assets of so-called “high net-worth individuals,” who are often willing to pay a premium for secrecy, is highly lucrative. According to Tax Justice Network research, the top 10 private banks had more than US$6 trillion under management in 2010, up from US$2.3 trillion five years earlier.

Much of the appeal lies in their discretion. Switzerland has long been at the heart of the private banking industry, with its tradition of secrecy dating back to 1934, when it became a criminal offence for employees to pass on information about clients’ accounts to a third party, even government tax inspectors from other countries.

For years, governments turned a blind eye to their wealthiest citizens squirreling away their riches in such tax havens. However, since the global economic meltdown, cash-strapped governments are scrabbling around for revenue and Switzerland has been one of the first places they have looked.

The UK government has struck a deal with the Swiss authorities to try and claw back at least some money from tax evaders. Under this deal, UK residents with undeclared assets in Swiss banks will be able to make a one-off, “clear the slate” payment of 21 percent to 41 percent on their total assets and retain their anonymity. The Swiss will then levy a withholding tax on any future investment income and capital gains banked in Switzerland, set at 27 percent to 48 percent. That compares with the top 50 percent rate of tax for funds kept in UK-based banks, due to be cut to 45 percent as of next year.

Tax expert Richard Murphy says this means those wealthy enough to transfer their assets are getting off extremely lightly: “It’s extraordinary. It’s legal to hide your money from Her Majesty’s Revenue and Customs [HMRC] now. You can complete a tax return and not put your income on it if it’s hidden in a Swiss bank account. This is fundamentally wrong.”